The Corporate Director’s Compliance Oversight Responsibility in the Post Caremark Era (Part 1)(Part 2)(Part 3)

H. Lowell Brown

For corporations operating in regulated industries, compliance with the applicable laws is essential. Violation of these laws may materially affect the corporation’s financial standing and may result in foreclosure of the corporation’s ability to continue its operations. Thus, the avoidance of a regulatory crisis may be as significant to the corporation’s long-term well being as is strategic planning and product innovation.

The holding of the Delaware Court of Chancery in In re Caremark International, Inc., Derivative Litigation,’ that directors may be liable for losses resulting from the corporation’s failure to comply with applicable legal standards has fueled discussion of the board’s role in ensuring compliance. This article discusses the board’s compliance oversight responsibility in light of pronouncements by the Securities and Exchange Commission (SEC), the American Law Institute, and the American Bar Association, as well as the commentary of corporate governance scholars and other precedent Steps for implementing a compliance program that will satisfy the board’s oversight responsibility are also suggested.